Fraudulent Transfer Provisions in Bankruptcy Law

bankruptcy law

Bankruptcy courts see a range of debt cleansing strategies applied to debtor accounts.

One popular method of extracting the history of credit abuse is by way of actual fraudulent transfer.

Cases brought to court for Chapter 7 Bankruptcy relief permit trustee to protect themselves from an attachment of interest or debt by a debtor property, allowing trustees to recover from alleged fraudulent transfers that breach fiduciary duty in administration of a trust. More recently, bankruptcy court review of cryptocurrency transfers to estates as part of debt discharge proceedings has contributed to changing the policy; The courts have determined that bitcoin and other cryptocurrency transfers are not the same as currency-based transfers, and therefore, not subject to the same rules of enforceability under existing law.

Actual Fraud Provisions

U.S. Federal Bankruptcy Code § 523(a)(2)(A) articulates actual fraud provisions to conveyances in instances in which an estate is subject to creditor attachment.

Actual fraud under the strict interpretation of the law does not cover debts obtained by fraud.

A court making an “actual fraud” exception to bankruptcy discharge requires proof of false representation to a creditor (Husky Int’l Elecs., Inc. v. Ritz (In re Ritz), 787 F.3d 312 (5th Cir. 2015)(27 BBLR 809, 6/4/15)). Bankruptcy petitions found to not involve debtor misrepresentation to a creditor are customarily allowed to proceed to discharge.

In some circumstances, a court may extend the concept of “equitable credit” in consideration of constructive fraudulent transfers and actual fraudulent transfers.

Actual Fraud Rules and Bitcoin Transfers

Cryptocurrency, the distributed ledger technology and transaction chain linking bitcoin to underlying value, is becoming more prevalent a focus for lawmakers, as statutory legislation is put to the test by courts of law.

Cryptocurrency falls under “property of the estate” in U.S. bankruptcy code § 541 covering “all legal or equitable interests of the debtor in property as of the commencement of the case.”

In a 2016 decision, a Northern District Court of California cited Chapter 11 bankruptcy laws in a ruling that deemed bitcoin to not be the same as U.S. dollars, and therefore not sufficient basis for enforcement of fraudulent transfer provisions in federal bankruptcy law (Hashfast Technologies LLC v. Marc A Lowe, No. 14-30725DM, Jan 16, 2016).

Contact a Bankruptcy Law Attorney

Bankruptcy is a complex legal matter. When actual fraud or other debt related issues arise and a bankruptcy claimant faces imperilment, a professional attorney at law experienced in bankruptcy litigation can help.

Call (813) 221-9500 or click here to contact a licensed attorney practice in Florida specializing in Chapter 7, Chapter 11, and Chapter 13 bankruptcy petition. Contact FL Legal Group for a consultation about a legal matter involving creditor attachment.


11 U.S.C. § 523 – U.S. Code – Unannotated Title 11. Bankruptcy § 523. Exceptions to discharge, FindLaw,
Husky Int’l Elecs., Inc. v. Ritz (In re Ritz), 787 F.3d 312 (5th Cir. 2015)(27 BBLR 809, 06/15/15), Justia,
Maldonaldo, Jaliz, Attorney’s Guide to the Unraveling of Cryptocurrency, Article 9 and Bankruptcy, 2018, National Law Review,
McRoberts, Travis A. and Salzberg, Mark A., Washing Away Actual Fraud? One Court Says You Can, National Law Review, 2018,

See Related Blog Posts

Bankruptcy Chapter 7: What You Need to Know
What is the Purpose of Bankruptcy?

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